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How advanced acquirers approach culture in M&A

Findings from the Willis Towers Watson M&A Culture Group

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By Jim McKay , Craig Keller and John M. Bremen | July 30, 2020

We explore the cultural framework developed by a highly experienced group of M&A practitioners to facilitate cultural discussions specific to M&A.

This paper is part of a series about advanced M&A cultural practices. The intent of the series is to share the current state of leading practices in cultural work, specifically and only for the M&A situation.

It is based on the findings from a unique and highly experienced group of M&A practitioners that meet on a regular basis with Willis Towers Watson to share and discuss their views on this area. Each firm’s participants are drawn from its in-house M&A functions, representing corporate development, business development or corporate strategy (the term varies based on each firm’s internal definition of the role) and its Human Resources M&A group. Throughout the series, the content reflects the discussions within the group and not the sole practices of any one firm.

The distinguishing feature about the group that will also help readers understand the content better is that cultural investigations are an accepted part of their M&A process. This means that the focus of the paper is on:

  • What they do in culture work
  • When and how they do it

This paper does not address why they should do the work in the first place, which is the subject of a separate article in the series.

The reason for this approach is that these firms concluded many years ago that cultural problems are a major factor contributing to deal failures. While they had seen all the publicly available research on how cultural problems led to deal failure, it was their own specific reviews of the success or otherwise of their own deals, led by their corporate development function, that gave them the reason to improve their overall approach to culture, both in the acquisition phase — when they are spending capital — and in the integration phases and beyond — when the return on the capital invested is expected to materialize.

As a result, the group of M&A practitioners developed their approach to address culture in a structured way, similar to how their firms approached any business problem (i.e., being clear on the root causes and problems, and the goals and risks or costs and benefits of any analysis, explained in terms a business leader could understand).

This paper shows how they first brought that structure and discipline to cultural discussions through capturing in one place the parts of culture that have the greatest impact on a transaction. This was accomplished by creating a cultural framework (view and download culture framework) built for M&A purposes, to facilitate the structured and organized discussions in this area taking place. This framework formed the platform for ongoing cultural investigations because it more precisely maps culture’s impact on deal outcomes, goals and risks. As one participant commented, “Culture is a business imperative for us; it is not investigating culture for culture’s sake.”

About the types of transactions in the group’s discussion

The discussion is centered on bigger firms buying smaller firms with an emphasis on “talent-based deals,” meaning deals where the people at a target are deemed the most important asset among all the other assets at a target. For most buyers, the deal strategy centers on acquiring to expand their capabilities (also known as “scope deals” in M&A circles).

We did not consider any transaction that transformed a company to such an extent that creating a “new” culture, or third culture, was required. While these transactions do happen, they are a very small percentage of actual deals. Likewise, large industrial deals, and mega-mergers, while discussed within the group, are not the focus of this paper. The consensus was that the size, scale and global scope of these deals made it difficult to incorporate the approaches discussed here early, and also that there were many other “assets” in the combining firms, well beyond just talent and employees.

Finally, the issue of growth or erosion of shareholder value as a specific goal, as seen through buyer stock price changes, is not typically a goal of talent-based deals and was not a factor in our analysis. In contrast, larger deals lend themselves better to share price comparisons with peer companies, as this data is publicly available and can then be analyzed by consulting firms and academics alike.

However, the general principles reviewed here can be adjusted and applied in varying “doses” to most deals.

To learn more about how advanced acquires approach culture in M&A, download the complete white paper below. Our experts delve into:

  1. Key imperatives of addressing culture in M&A transactions
  2. Cultural realities in M&A transactions
  3. ‘The culture will take care of itself’ and other M&A myths
  4. Defining culture for the specific purpose of the M&A transaction
  5. The practical application of the M&A cultural framework: Input
  6. Summary and conclusion
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Authors

Managing Director, North American M&A Human Capital and Benefits Leader

Senior Director, M&A Consulting and Head of Change Management, Asia Pacific

Managing Director, Human Capital & Benefits, and Global Head of Thought Leadership and Innovation

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